Insight: Goodbye gasoline? GM gives natural gas cars a boost

NEW YORK (Reuters) - American automobiles have a limited diet, but gasoline's monopoly at the pump may be ending. The giant of U.S. automakers is turning to something cheaper and cleaner: natural gas.

General Motors Corp announced plans this week to develop its first natural gas-powered engine, overcoming its long aversion to alternative fuels and joining a host of smaller players working to put natural gas in car engines.

In Indianapolis, Marlon Kirby has built a new supercar that looks much like all the others - sleek, curvy, low to the ground - but which differs from its gasoline-guzzling counterparts in one major way: it runs on liquid natural gas.

After 21,000 man hours, the $1 million Maxximus LNG 2000 is ready for speed trials and Kirby expects it to top 200 miles per hour.

GM, the automobile powerhouse and Kirby, the niche mechanic, are at opposite ends of the same movement; to make car engines that use the country's abundant, cheap supplies of natural gas.

The United States has more natural gas than it knows what to do with - up to 100 years of supply, experts say - thanks to a new drilling technique called hydraulic fracturing which releases huge reserves of natural gas trapped in shale rock.

Natural gas is used mainly in electricity generation and for industry, but with just 120,000 natural gas vehicles on the road and only 900 filling stations, transport remains a tiny fraction of total demand.

However, assuming production forecasts are correct, natural gas will likely remain cheap for years and could help cut U.S. reliance on oil. While crude prices soared above $110 a barrel this year due to unrest in the Middle East, U.S. natural gas prices, impervious to international influence, remained low as there was no shortage of natural gas at home.

Drivers who fill up with natural gas at the pump saved up to $2 per gallon when gasoline prices hit $4 a gallon. (Graphic: here: http://r.reuters.com/get42s )

Car makers, manufacturers and fleet owners are quietly scrambling to run their engines on the cleaner-burning fossil fuel which was formerly the preserve of trash trucks and city buses.

"With all the activity in shale gas, the natural gas price is decoupled from diesel. Natural gas is a lot more attractive given the situation in the market," said Ian Scott, president of Westport Innovations Light-Duty Division.

Vancouver-based Westport, which develops technologies to convert engines to run on natural gas, is working with GM on the multimillion-dollar project to develop a natural gas vehicle.

GM and Westport will look at light-weight engines, as small as 0.5 liters, opening up the market to smaller consumer vehicles previously overlooked by engine manufacturers.

This would be only the second passenger vehicle in the United States made at the factory to run on natural gas, following Honda's Civic GX.

Westport Chief Executive David Demers described this as the company's "breakout year" in a recent interview with Reuters. The company has sold 500 heavy-duty engine systems already this financial year, up from 25 the previous year.

"The big draw is the difference in the fuel price, especially with diesel above $4 a gallon," Dorwart said.

BEEN HERE BEFORE

Interest in natural gas has waxed and waned over the years, generally in reverse proportion to the price of oil. What may be different now is the massive and long-term oversupply.

"Over the past five years, we have seen that when there is slump in oil prices a lot of people forget about transitioning to a domestic fuel," said Carla York, chief executive of Innovation Drive consultants in Reston, Virginia. Innovation Drive helps manage a Clean Cities program in Connecticut which involves grants from the Department of Energy to build natural gas infrastructure.

Mack Trucks was heavily involved in natural gas vehicles in the 1990s, with 400 or so on the road, but falling gasoline prices dented demand enough that they were discontinued.

In the 1990s, GM offered the Chevrolet Kodiak and GMC Top Kick that were retrofitted to run on natural gas, but these were discontinued during restructuring in the mid 2000s.

Even if oil prices retreat again, some in the industry say natural gas will remain attractive due to its long-term abundance and the potential for government support.

"The movement again toward natural gas is greater than in the late 1990s and this time it looks like it might have legs," said Curtis Dorwart, Mack Trucks' vocational marketing product manager.

Richard Kolodziej, president of NGV America, a natural gas vehicle trade association, said natural gas displaced 360 million gallons of gasoline in 2010. He forecasts that could rise to 10 billion gallons in 15 years.

"The difference now is that there is confidence about the supply of natural gas," Kolodziej said. "The United States has a lot of natural gas."

In Connecticut, the Clean Cities program covers the extra cost of a natural gas vehicle. Taxi firm Metro Taxi in West Haven has taken delivery of a fleet of converted Ford transit cars.

Much hinges on politics. The Natural Gas Act launched in the House of Representatives in April proposes incentives for purchasing and building natural gas vehicles, replacing a previous bill whose sweeteners for users of the fuel have recently expired.

The proposed incentives include a 50 cent per gallon fuel credit, a purchasing credit that covers up to 80 percent of the extra cost of a natural gas vehicle, and tax breaks for building fueling infrastructure. The bill has bipartisan support and some say it could pass this year.

GAS GUZZLERS

Some of the most innovative work to get natural gas into car engines is happening not in Washington but in a gas-guzzling city in the American heartland, Indianapolis. Marlon Kirby -- a stocky, fast-talking mechanic -- began racing cars when he was six and working on hotrods when he was 10.

But, with the help of high-flying hedge fund manager Bruce McMahan, he's left gasoline behind. The two met when Kirby was doing some shifts driving a limousine in 2005. During a 20-minute ride, Kirby pitched his supercar plan. McMahan was interested; business cards were exchanged.

Six years and seven world speed records later, the two business partners have moved on to natural gas. They say the Maxximus LNG 2000 could beat world speed records.

"I looked at several different energy sources," Kirby said. "What could I use fuel-wise that we have a lot of, which is readily available and cleaner for the environment? It doesn't matter about your political views, we can all be better."

(Reporting by Edward McAllister; Editing by Claudia Parsons and David Gregorio)